I’m in Awe of How Fast Deutsche Bank is Falling Apart

Counterparties lose confidence, withdraw cash.

Deutsche Bank, with $2 trillion in assets, amounting to 58% of Germany’s GDP, one of the most globally interwoven banks, with gross notional derivatives exposure of €46 trillion, right at the top along with JP Morgan (booked as €41 billion in derivative trading assets after netting and collateral) – this creature of risk and malfeasance, is finally starting to scare its counterparties.

[S]ome funds that use the bank’s prime brokerage service have moved part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Millennium Partners, Capula Investment Management, and Rokos Capital Management are among about 10 hedge funds that have cut their exposure, said a person familiar with the situation….

So far, these are just the first of Deutsche Bank’s 200 hedge-fund clients that use it to clear their derivatives transactions. Banking is a confidence game. When confidence sags, the whole construct comes tumbling down. And the first movers have a big advantage in getting their cash out in in time. Bloomberg:

Clients review their exposure to counterparties to avoid situations like the 2008 collapse of Lehman Brothers Holdings Inc. and MF Global’s 2011 bankruptcy when hedge funds had billions of dollars of assets frozen until the resolution of lengthy legal proceedings.

As the leak ricocheted around the world, Deutsche Bank shares plunged 6.6% in late trading today in Frankfurt to €10.25, having been down 8% at one point earlier. Shares are at the lowest level since they started trading on the Xetra exchange in 1992. They’re down 68% from April 2015. Just before the financial Crisis, they briefly traded at over €100 a share. By that measure, they’re down over 90%!

Merkel’s popularity has recently taken a hit, and a big, immensely unpopular taxpayer bailout of bank stockholders and bondholders could cost her the election. The onslaught of contradictory denials that this episode has produced was a sight to behold.

So Tuesday, shares took a breath; Wednesday, they rose 2%; and today by mid-afternoon, they rose another 1% to €10.87, as falling knife-catchers were grabbing what they could, before all heck broke loose again.

Deutsche Bank’s market capitalization has shriveled to €14 billion ($15.7 billion), a few bad trading days away from the $14 billion in fines that the US Department of Justice wants in order to settle the allegations surrounding Deutsche Bank’s residential mortgage-backed securities that blew up during the Financial Crisis.

Deutsche Bank isn’t getting singled out. US Banks have already settled their RMBS allegations: Bank of America for $16.7 billion, JP Morgan for $9 billion, Citigroup for $7 billion, Goldman Sachs for $5 billion, and so on. They all settled for less than the original amount. Deutsche Bank will be able to settle for less as well. But its problem isn’t just the Department of Justice.

Today’s massacre came when evidence trickled out that the next phase has begun: that some financial institutions, particularly in the derivatives arena where Deutsche Bank is so exposed, are beginning to lose confidence and are withdrawing cash. When word got out that counterparties were losing confidence in Lehman, it started a stampede for the exits – and triggered the collapse.

Problems at a big bank are always categorically denied by both the government and the bank. Banking is a confidence game, and confidence has to be maintained at all costs or else the bank is toast. So, in that vein, Deutsche Bank spokesman Michael Golden, told Bloomberg:

“We are confident that the vast majority of [our trading clients] have a full understanding of our stable financial position, the current macroeconomic environment, the litigation process in the U.S., and the progress we are making with our strategy.”

But the government, looking at a financial system that might face an existential crisis if Deutsche Bank were allowed to collapse, appears to take this seriously. On Tuesday, the German daily Zeit Online reported that, “despite all the denials,” the government is working on a bailout plan as it “fears a financial emergency”:

Officials in Berlin [German government], Brussels [EU government], and Frankfurt [ECB] are working on a contingency plan for the largest German financial institution, according to information Die Zeit received. Also state aid could be paid.

It would become effective when the bank needs additional capital but cannot raise it in the markets.

The plan has several components. The bank could sell parts of it business to other financial institutions at inflated prices so that it would find relief but not lose money on the transaction. As incentive for reluctant buyers, the government could hand out guarantees. In addition, the government could buy a large stake in the bank – “25% is being discussed.”

This would dilute stockholders even further. But at the current share price, it would not even raise a lot of money. So if push comes to shove, with shares sinking further, the stake could be much larger with ugly consequences for current stockholders.

As by now expected, the government denied the bailout plan point blank via our hapless spokesman: “This message is incorrect. The federal government is not preparing any rescue plans. The reason for such speculations does not exist.”

But some counterparties with money on the line aren’t buying the denials; they’re already losing confidence and voting with their feet.

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So just to be clear, derivatives are a category of security whose price is derived from the value of some underlying asset(s), such as stocks, bonds, market indices, etc. Futures contracts, options, and the like are derivatives.

The derivative itself is a contract between at least two parties, based on some underlying assets. Hence the importance of counterparties.

Gross Notional Value is NOT normally the amount at risk but an amount that determines contractual payments of some sort, as specified by the contract. The amount at risk, after netting and collateral, is much, much smaller.

For example, an S&P 500 index futures contract obligates you to 250 units of the S&P 500 index. If the index is trading at $2,150, then the futures contract is similar to investing $537,500 (250 x $2,150). That $537,500 is the notional value underlying the futures contract. It’s not the amount you have at risk.

Gross Notional Value Exposure is one of the measures of derivatives that banks report (that’s why we know these amounts). The OCC in its quarterly report uses them too. When people talk about derivatives, that’s usually the amount they use.

Many people ignore Gross Notional Value Exposure because it’s a “notional” amount – a theoretical or abstract amount. That’s why I included the $41 billion of “derivative trading assets,” which is the amount the bank reported as being at risk after netting and collateral.

I would NOT ignore Gross Notional Value Exposure. But when the big S hits the fan, actual losses will just be a small fraction of it, tough perhaps greater than the amount the bank reports as “trading derivative assets.” But even that smaller amount could more than wipe out the bank.

night-train

Sep 29, 2016 at 9:33 pm

Wolf: Thanks for the explanation. I think I have a handle on derivatives and Gross Notional Value. Which is kind of scary. Scary in that I think I understand it and scary that someone came up with the system to begin with.

CCDB

Sep 29, 2016 at 10:42 pm

But trading futures is one thing, because it’s done (at least here in the US) on a regulated exchange, and most futures contracts are for fairly liquid underlying securities, bonds, etc. I think Deutche Bank (among others) exposure lies more with CDS, or credit default swaps, that for the most part are not traded on open liquid exchanges, and can be purchased or sold for notional amounts that far exceed the underlying assets of the security. Translation – unhedged swaps, which create exposure that can far exceed the assets of the underwriter.

robert blumenthal

Sep 30, 2016 at 3:59 pm

Shades of Bear Stearns and Lehman Bros.

ANON

Sep 29, 2016 at 6:36 pm

Good things happen slowly. Bad things happen fast.
Seneca cliff does not spare anything, humans, however, manage to put two dents in it: a bear trap, and a bull trap. That’s because we’re mostly driven by intelligence (the capacity to imagine the future), thus by stories: nice stories on the way up, nightmarish stories on the way down.

Boatwright

Sep 30, 2016 at 5:27 am

………nightmares fed by our imagining that “imagining the future” is the same as knowing it. Complex derivatives, designed to “hedge” the future (that is to constrain it) contain the unexamined promise that the future is knowable to the priesthood. Such schemes should be illegal and the charlatans that spin the tales should be made to look for another line of work.

KMOUT

Oct 1, 2016 at 9:04 am

Nicely done Boatright.
I had to read it again to get it.
Linear extrapolation in 3 dimensions can’t work.

Fred Hayek

Oct 1, 2016 at 7:29 pm

In the U.S., they had to repeal or revise laws against gambling to allow much of what goes on in the derivatives field. That’s what these expenditures were, rightly, regarded as being, just big gambling bets.

Islander

Sep 29, 2016 at 6:58 pm

This article is very gloomy on DB, so Ill offer a few counter points. First, I’m sure we’re all agreed that banking has become heavily, totally dependent on government policy. 2) Governments, by nature, play politics. 3) The fall out from a DB bank run would be colossal.

Now consider that Germany is driving some very hard line, unpopular politics in Europe. A weakening of the Teutonics would also help Britain after Brexit. So, motive and suspects exist that want to put the pressure on, but a true collapse would hurt everyone.

So my conclusion is that Germany may perhaps give a bit on trade deals, or soften its stance on credit for the periphery. The Frankfurt vs London financial center rivalry is in full bloom too, which is another factor. It’s an exciting game of chicken, but i rate the chance that they’ll fabricate (by accident or design) an actual run as very low. Anyone panic selling or shorting DB may get a nasty surprise as the stock rallies on seemingly unrelated political news.

Marty

Sep 30, 2016 at 1:40 am

Was having similar thoughts. Could the Russian sanctions have anything to do with this–the neocons keeping the Germans in line?

Bear in mind that just because it starts out as a “game” doesn’t mean there won’t be an accident.

So funny … the ‘guarantees’ the German government would offer are funds borrowed from the same bank(s) the government is intent on bailing out!

Question: under these circumstances who is fool in the market?

ANON

Sep 29, 2016 at 9:57 pm

We’re all fools, Steve (been a reader of your blog). Money is just a promise of more, at some time in the future. If the money existed in physical form, it would be worthless. Only the promise counts as something, until it is proven empty, and disappears (deflation), or the trust in it fails (hyperinflation).
Most EU countries will have the unfortunate surprise of both unpleasantries: evaporation of the Big Union story promises (€), while the same time the complete lack of trust in whatever the next storytellers will try to gather-up (drachmas, liras, Dmarks, FFrancs, and so on). These have value only in a narrative, so the narrators will have to get to work really fast to hold it together.
It is the stuff of nightmares replacing the stuff of dreams, and no one is to blame (least of all the carz :) ), it is the way of the world, happens to everything.

Green Rock

Sep 30, 2016 at 9:16 am

Time to get out of all fiat and back to true currency, silver. Screw worrying about all this. It’s Japanese Kabuki theatre designed to keep us occupied enough to distract us from making real changes in our lives.

I read somewhere that it was Ernest Hemingway, when asked how he went bankrupt, replied; “Slowly at first, then all of a sudden”.

The global banking community is now wringing their hands in dread of DB failing. It won’t sink. It truly is too big to fail for Germany. When your one big bank handles accounts that match 54% of the countries GDP, then it is rightly judged to be too big to fail.

It will be the German nation itself that will be the ultimate backstop for Deutsche Bank. Congratulations to the German taxpayer. Now get your check book out and start handing over your saving accounts. And that fully vested pension? Well it will now be reduced.

Robert Miller

Sep 29, 2016 at 8:59 pm

They may be to big to save. It’s my understanding that all of Europe does not have enough money to prop them up.

Michael Gorback

Sep 29, 2016 at 11:03 pm

Nope. It was a character in The Sun Also Rises.

OutLookingIn

Sep 30, 2016 at 11:51 am

Michael Gorback –

Thank you. After rummaging around and driving the lady mad, I finally found my old copy of “The Sun Also Rises”, written of course by Ernest Hemingway. So you could contend that it was him who said it, only through one his characters. Really enjoying re-reading this classic after so many years. As apropos today, as it was when published in 1926.

The result may be similar to what happened with ABNAMRO in Netherlands around 2008. They were not even close to failing, but taken over by government anyway because of the risky financial situation (Fortis bank going under etc.).

The politicians ‘guaranteed’ that the tax payer would not lose a dime on buying and later selling of ABNAMRO. Of course real life was very different, many lower echelon people at the bank lost their job, the higher management who were now in fact government workers got their nice pay increases and bonuses, and the Dutch taxpayers sit on (unrealized) losses of at least 10 billion or so.

Savers did not experience direct losses, but ever since savings rates have been below inflation so they got punished anyway. On the other side, many people (especially those with good connections like politicians) were forgiven their mortgage or offered extremely low mortgage rates, so all is good ;-)

You know that politicians are lying when they open their mouth; it won’t be any different in Germany. I just hope the troubles DB is going to cause in Germany will be the nail in the coffin for Merkel and her disastrous policies.

walter map

Sep 29, 2016 at 7:27 pm

Perp walks, confiscation, and reregulation. DB should be nationalized, its assets sold off, and its officers prosecuted. Book the losses and limit the collateral economic damage.

Bailing it out only perpetuates a criminal monstrosity by cheating the general population, and you’ll be doing the same thing again every few years until you put the beast down.

My prediction is that they’ll perpetuate the criminal monstrosity by cheating the general population and limiting the collateral political damage. That’s SOP. TPTB will not be gainsaid. Ever.

Vespa P200E

Sep 29, 2016 at 7:41 pm

And there’s no AIG to pay off the tangled web of derivatives and CDSs either.

No worries as ECB’s super Mario, IMF’s Christine and the Fed’s old Yeller will announce that they have a solution – GIGANTIC money printing (creation via few keystrokes out of thin air) to any and all on no bankers left behind who made wrong derivatives bet as hey it’s “Privatize the banker gains and SOCIALIZE the banker LOSSES”.

Mario the ex-Government Sacks alum will bluff just like Hank Paulson to extract mother of all TARP with EU twist of course.

Greg

Sep 29, 2016 at 8:41 pm

Since we know the bank will not really go down, the bank’s stock is pure gold once it has bottomed. This may well be the buy of the century.

Anyone care to speculate what the buy point is?

But…should DB actually go bankrupt, do the shares become liquidated? Not sure what the EU or Germany bankruptcy laws, or receivership laws require.

Careful: If the government takes a large equity stake (DB sells shares to the government), the stock could get crushed due to dilution. Raising capital is not free for existing stockholders.

d

Sep 29, 2016 at 9:46 pm

I have been saying for a long time, the Germans have to let a big German bank fail in a controlled manner.

Then Italy, and the rest of club med, have no choice in how they treat their big problem bank’s.

I dont expect a Lehman style collapse, simply and orderly state controlled liquidation, over a period of time. All this talk of preparation’s has substance , what is not being prepared, is a state bail out, IMHO.

I expect bond stock and those holding those other instruments will end up with fresh air.

Mutti will not allow depositors to loose, as it will cost her, and her party the election if she does, just as she can, and will not, use taxpayer funds to bail out DB, for the same reason.

DB has bad timing in its need of a bail out..

DB find’s a white knight, or it goes, IMHO.

The the real S will HTF, in Italy, and club med.

John M

Sep 30, 2016 at 12:15 am

D
Let me know how orderly the collapse of Hanjin is going too with 10 year old Panamaxes getting scrapped for steel and brass/ bronze.

Hanjin probably won’t survive as is and I suspect Deutsche Bank will have a new set of shareholders installed. Interesting times.

d

Sep 30, 2016 at 5:13 am

Hanjin is a victim of chinese state economic warfare.

Then decision on its future, is currently in the hands of a judge.

The disorder in the demise of Hanjin has passed.

If Hanjin is to be liquidated the best thing to do for Korea, is Scrap all of the fleet Hanjin own’s, as this will strengthen the other Korean carriers. Until the chinese state yards, deliberately return Asia, to the same overcapacity situation, as currently exists.

He who controls the ships controls the trade.

The only way to stop china using overcapacity, to to destroy the other shippers, is to regulate against them.

DB is a victim of its own administrators, corruption and greed. A completely different set of circumstances.

nhz

Sep 30, 2016 at 5:27 am

“Mutti will not allow depositors to loose, as it will cost her, and her party the election if she does, just as she can, and will not, use taxpayer funds to bail out DB, for the same reason.”

Depositors with more than the guaranteed amount of 100K euro (probably, not sure of the amount for Germany) are easy prey in such a situation, Cyprus already set a precedent and we have had somewhat similar situations in Spain where ‘junior bondholders’ (people who often thought they had some kind of savings account …) lost most of their money. The losses are big for the individual, but these depositors are a tiny minority on the voters and with the right government propaganda the sheeple will cheer what is happening (after all, people with over 100K in the bank are terrorists or capitalist pigs anyway, so no problem stealing their money).

Of course the taxpayer will get the bill for bailing out DB, who else would? Certainly not the banks and other big gamblers …

d

Sep 30, 2016 at 5:38 am

“Of course the taxpayer will get the bill for bailing out DB, who else would? ”

Rules in Germany have changed.

Watch.

Germany has to play hardball with DB, or the German Taxpayer, will be on the hook for every dodgy bank in club med.

Fred Hayek

Oct 1, 2016 at 7:34 pm

You’re right, d.
If Deutsche Bank gets off easy then the howling from the Italians and Spanish will not end.

Dave Marks

Sep 30, 2016 at 4:40 am

But why would the German government buy “new” shares, thus diluting existing shareholder value? All the government has to do is print money and go into the actual markets and buy up EXISTING shares?

1. Neither the German central bank nor the government can print money. Only the ECB can. So the German government would have to issue bonds (borrow money from taxpayers) and then use the proceeds to buy existing shares from existing shareholders.

2. While that strategy would prop up DB shares for a few days or weeks, it would do ZERO for DB’s capital because the money for buying existing shares doesn’t go to DB; it goes to existing shareholders and bails them out of the shares. And DB remains in the same teetering miserable condition it is in now, heading toward the same fate at the same speed.

3. What DB needs is new capital, lots of it, to clean up its books, and pay the fines, and take losses it needs to take, and trim down.

d

Oct 1, 2016 at 12:38 am

How does the state, buying existing share’s in the market, put cash in the hands of DB.??????????

This is why NEW shares are required, that are brought directly from DB, plus a brokers fee.

Although in a direct State recapitalization program, the broker may not be required

chris Hauser

Sep 29, 2016 at 9:14 pm

pure gold? recyclable scrap, but there’s money in scrap.

my grandfather worked for DB, once upon a time way back when in the old country, and he always called it the bank, just that, the bank.

if the bank is only worth a 1/4 of book, wtf is up with that book?

i can’t believe it’s on life support, just got the flu. for the last 6-7-8 years……

david

Sep 30, 2016 at 12:00 am

I have never thought of correcting Wolf but his “Careful”…should have been “NOOOOOOOO” LOL After everything has crashed out I still wouldn’t buy DB with free money. Especially with NIRP.

fajensen

Oct 3, 2016 at 4:49 am

I’d buy the stock 1) when it is under 10 EUR and 2) when more skeletons are tumbling out of closets and the stock doesn’t drop much on the bad news – couple of % maybe.

2) The “5 stages of grief”, After denial, comes anger, then resignation, then bargaining and finally acceptance.

Acceptance is where the “CEx’s and politicians realize they *did* screw the pooch, and it doesn’t come unscrewed again on it’s own”.

After a while even these Brainiacs will see that it doesn’t get any worse whatever they do, so they might avail themselves of this opportunity to clean out all the dirt from the balance sheets and start anew.

The stock doesn’t drop further on this because it is mainly in the hard hands of skilled operators and insiders – who knows that The Fix is about in (’cause otherwise we wouldn’t have the cleansing of confession).

So, Expect to pick the stock up at 1 EUR or so. Should be at least a 500% dead-cat bounce in it when the shorts cover. Or maybe do the LEAP calls.

If DB is not bailed out in one form or another,it goes under.Then what happens to its derivative book.Most are probably plain vanillla with investment grade counterparties and present relatively few problems.A small % involve counterparties with less than stellar ratings.At what point does DB violate the terms of their derivative contracts.If it does then a cascading effect is possible.This cascading effect can possibly infect the worldwide derivative market of over $500 trillion.if only %1 become questionable that is $5 trillion.
The bottom line is that there is only a very small chance that Germany will NOT bail out DB.Whether this involves just a dilution of equity or whether junior creditors are involved,only time will tell.For Germany to bail-in large depositors ala CYprus will be suicidal for other German banks and will not happen.
After Germany bailout DB,there will be no valid argument to prevent other countries ,especially Italy ,Portugal and Spain to do the same.Then the Eurobank rules will be amended to allow it to purchase more of these sovereign bonds.Until confidence in Central banks is lost,the system can continue limping along

JT

Sep 29, 2016 at 9:27 pm

Assuming of course that it’s not being purposely let go after being pumped full of toxic waste

John M

Sep 29, 2016 at 9:55 pm

Cohn

As soon as DB is bailed out so will every other bank in Europe be bailed out. Thus the whole system is backed by the full faith of these government’s credit risk. Gold has no credit risk. It is its own surety. Its either fiat or some hard asset like coal copper oil uranium gold platinum silver .. You get the idea..

Have a look at Argentina’s crisis of 1998 -2002 and know that folks who owned property came thru that depression more or less intact..

Hans Wurst

Sep 30, 2016 at 5:57 am

What, ordinary folks got to keep property? This unfortunate design failure in Argentina has largely been corrected in Greece, the Eurozone’s taxation blueprint.

david

Sep 29, 2016 at 8:58 pm

off topic, but from a previous report….a buddy went by grand junction, CO this week and said the number of train engines lined up collecting dust is staggering.

There is a complex of coal mines in Somerset, Colorado (one owned by Koch Energy) that have been supplying large shipments of metallurgical grade low-sulfur coal to the Asian market for several decades. These mines use advanced engineering and are extremely productive, sending 100 car trains every day down the valley through Grand Junction to the West Coast for shipment to Asia.

Railcars permanently parked in Grand Junction could be a confirming indication of flagging demand for Asian steel.

night-train

Sep 30, 2016 at 9:49 pm

Much of the coal mined in the Black Warrior Basin of Alabama is met coal as well. There have been layoffs and bankruptcies. Jim Walter being the largest. Somebody is making less steel.

OutLookingIn

Sep 30, 2016 at 2:49 pm

Just not Grand Junction, Colorado.
BNSF Saginaw yard in Saginaw Texas and Donkey Creek yard in Rozet Wyoming.
Four lines of locomotives in Saginaw + 100 units
One line at Rozet with +70 units

you tube videos 9-Aa40ADAlY and sWsSL4khr-A

joe

Sep 30, 2016 at 4:27 am

I’ll verify that. I’ve never seen so many locomotives in one place.

Gil Obrero

Sep 29, 2016 at 9:04 pm

A friend in Germany tells me that the company he works for is getting a flood of prepayments from contractors they supply services to regularly, who do bank with DB because they don’t bank with DB.

Clearly businesses in Germany are waking up and using all means to extract cash from DB

Phil

Sep 29, 2016 at 10:06 pm

I have always read the OCC reports, but have never seen a similar report for European Banks. Is there one?

Chicken

Sep 29, 2016 at 11:01 pm

“one of the most globally interwoven banks”
Hopefully this leverage isn’t in anticipation of a global prosperity b/c best I can tell it’s not occurring.

Steve C.

Sep 29, 2016 at 11:13 pm

Coincidental that Germany told it’s people recently to “stockpile food and water in case of an attack or catastrophe”, I think not. All ties back to the spiking EOI on energy ratios. First stage is a major collapse where the SDR becomes the reserve currency. US still has a majority stake in the basket, which will keep us in the game a bit longer. EROI on energy is our final nail in the coffin. Best to all and if you are following this site, you have a big advantage over the sheeple. Best to all.

Steve C.

Sep 29, 2016 at 11:15 pm

Correction: EOI = EROI

BobT

Sep 29, 2016 at 11:22 pm

The big tell that failure was on the horizon for DB was when they appointed a Brit as CEO.

davidk

Sep 30, 2016 at 12:49 am

Anyone know if there are any implications for Commerzbank in this? I have savings in there.

On the other hand, I bought a WAMU CD at the time it was cratering. It offered 5% for five years, just as NIRP took over! WAMU was desperate for money. The CD was FDIC insured. Wells Fargo picked up WAMU deposits, and it continued to honor that CD, principal and interest – down to the last dime, thanks to FDIC deposit insurance.

Just a reminder for the folks out there who keep saying that depositors are just unsecured creditors: yes they are, but they’re INSURED creditors!!! Huge difference. Just know the rules and stay within the limits.

Lee

Sep 30, 2016 at 3:04 am

Well how much of its book is actually at risk and how much of its own money is on the line?

What securities does it hold on its own book?

Is it short gold? Silver? Other metals or futures?

It will be interesting to see how the other markets react to its trouble.

Are the ordinary people going to start to take out their cash? If and when that happens the game is really over…………….

Frankly, given my own personal situation I could care less what happens to DB.

Nothing will happen to the big end of town and the usual crowd will get the shaft.

Ho hum – business as usual in the banking sector.

Sound of the Suburbs

Sep 30, 2016 at 3:49 am

DB will have been hiding its problems for years.

When a banks problems appear at the surface the end is near.

Raymond

Sep 30, 2016 at 4:05 am

Wolf, if you have a spare second, I’d like to hear what the gears in your mind are think of this chart I was looking at:

Actually, I don’t know that these measures are still meaningful. M2 has been declining since the mid-1990s. That’s for about 20 years.

The decline of M1 and M2 coincides with the decline of checks being written to pay for things – increasingly replaced by electronic forms of payment, including credit cards.

Credit card balances don’t go into M2, but checking accounts and checks in circulation do. So when you shift payment to credit cards and other electronic methods, you lower the amount of checks in circulation. In addition, consumers might lower the amount they have in their checking accounts in relative terms and increase their debts (credit card balances) instead, which is also what has happened over those 20 years.

This is why people now pay a lot of attention to the supply of credit.

Dave

Sep 30, 2016 at 4:43 am

I am NOT IN AWE of how fast DB is unravelling. I have read in this blog and a couple of others about the terrible state of DB for a couple of yers now. What I find interesting is how long they can stay afloat and many lies are told to keep the ‘game’ going. But when things start to unravel of course it can fast because it’s been building up beneath the surface for years.

It’s like a guy on steroids. He can look good for a few years and everyone is in awe of how great he looks, buff, cut and lean. You lie and say you train hard and smart and eat well and you are ‘all natural’. When your body starts breaking down it deteriorates fast. Many times both your mind and body go fast.So, no I’m not surprised.

Now imagine all this lieing and cheating and stealing that goes on in the financial industry is being done across different industries but not too many people are paying attention. No wonder we have a big mess. Garbage food and Garbage medicine for the masses for fat profits. It doesn’t matter until it matters and then it’s too late!

Meme Imfurst

Sep 30, 2016 at 6:45 am

That is why they are called sheeple.

That is where the term “smart money’ comes from.

All these banks know they have everyone and their governments over a barrel and no one has the guts to let lessons be learned. The smart money is out and the sheeple are left with the bill.

The key here is the media. Does the media want some blood or is some ass like a Kardashingen or some nobody more important to cover. What you don’t know does hurt you right here in the ol USA.

Lets be crazy here, Ol’ Yellen tells Omama to load the pallets up with cash and dive bomb Germany until all the problems are fixed. We don’t want this spreading to the Ukraine, and upset there could get us engaged formally, permaneltly.

Edward E

Sep 30, 2016 at 10:47 am

Do you believe in déjà vu? Let’s see, Alan Greenspan didn’t tell Bubba to load up the pallets… the neocons were dead-set on getting us into something big… we went through a long brutally hot summer of discontent back then… and elected Dick Cheney and Dick Bush… nah, it’s not happening all over again Ed, don’t be crazy! Maybe we’ll actually make it to the elections and Mr Ponzi Scheme will keep the monsters away long enough

RobvC

Sep 30, 2016 at 7:26 am

Given the enormous (downward) pressure on DB with a stockvalue that is junmping up & down with 5%+ over the past 48hrs, who are the ‘brave’ buyers that keep on gambling and taking risks?

Al Kaplan

Sep 30, 2016 at 8:19 am

Deutsch Trust Preferred 8.05% is a great buy under 24 for a 8.4 % yield in you have brass cojones. (As I do)

Gunther

Sep 30, 2016 at 9:40 am

Why is nobody ever mentioning that Deutsche Bank has/is a major wall street opeation since they took over Bankers trust in the late nineties?
That makes DB USA a wall street firm with a parent that is not regulated by the fed.
That gives DB an unique position in the financial space; who knows how DB and German regulators are going to use this position?
Imagine DB asks for a bailout from the european ESM and gets say 700 billion euros to clean up. That would bring the euro way down and shoot the dollar up.
If the fed has to bail them out it will not be popular, especially during election time.
That is quite a mess.

Bruce the MBS Guy

Sep 30, 2016 at 10:27 am

That big $14 billion fine by the USA can never be collected. It comes from so-called mortgage securities abuses committed by Bankers Trust, acquired in 1999.

Aside from the reality that such abuses we caused by our own Community Reinvestment Act origination specifications, I think it would be wise for the USA to quickly reduce the claim to a low and manageable amount such as a Billion. Better to do that than throw Europe and the Banking system into disarray.

nhz

Sep 30, 2016 at 1:49 pm

better to do that, unless the plan was all along to throw Europe in disarray and profit from it …

nhz

Sep 30, 2016 at 10:57 am

I’m in awe at how fast DB stock is bouncing up today thanks to a rumor about a lower fine from the US authorities ;-)

Up 13% at the moment, some big players must be sitting on billions or gains.

NotSoSure

Sep 30, 2016 at 11:47 am

Exactly. As usual the bears will be eviscerated. Amazon will go to 1500 at the very least.

That DB would settle for a lower amount has been known from the very beginning. All banks did. Everyone said it. I did too. So that was baked in and is not the reason for the bounce.

DB has bounced wonderfully many times over the past two years, including when it announced that it would buy its won bonds. And it will continue to bounce.

nhz

Sep 30, 2016 at 1:48 pm

It looks to me like that rumor was the catalyst today; DB stock would have bounced anyway, agree about that.

I always wonder when such rumors are spread what is going on behind the scenes. People in the know with big positions can make huge profits in a few hours (irrespective of the fact that the rumor is true or false).

Bobby

Oct 1, 2016 at 9:13 am

Though bounces will be “dead cat” bounces until this cat reaches its nine lives and is toast..

Chicken

Sep 30, 2016 at 11:37 am

Just change the rules and all will be well (for until the next poor econ report is released).

Ehawk

Sep 30, 2016 at 11:59 am

What’s the big BUZZ about this? It’s biz as usual.

It will be bailed out. As always private gains and Socialized losses… suckers peasants.

Chicken

Sep 30, 2016 at 1:23 pm

I received my property tax nill today, it’s higher than last year. So things are looking up for someone.

nhz

Sep 30, 2016 at 1:54 pm

BTW, heard two rumors today about DB suddenly calling in two mortgages (in Netherlands). They really seem to be looking for cash ;-)

Don’t know the details, probably both are mortgages for small business owners that are a bit non-standard (with normal mortgages terminating the contract suddenly would be impossible without a very good reason like being severely behind with the payments).

Chicken

Sep 30, 2016 at 2:46 pm

I bet Lehman tried that as well.

Realist

Oct 1, 2016 at 7:20 am

According to my experince of the last few crises since the end of the 80’s, it is standard procedure for banks during bad times to bring small businesses behind the shed and expedite them there to be able to extract any value the banksters percieve that the small business does posess …

Why should DB be any different ? It’s always the small guy who gets thrown in front of the oncoming juggernaut ….

chris Hauser

Sep 30, 2016 at 8:08 pm

this just in: the market has decided db lives. the us government got a call asking for a settlement that can be swallowed.

by the way, those settlements aren’t “all cash,” anyway.

night-train

Sep 30, 2016 at 9:58 pm

I guess kids today grow up dreaming of running a TBTF enterprise into the ground and having the unwitting tax puppets of the world bail them out. Must be “what I want to be when I grow up” 2.0.

DB still has major hidden NPL and solvency issues, that a lift in the share price does not resolve, it simply removes some loan call pressure issues related, to share price.

How much of the Stock buying, is simply short covering???

Bobby

Oct 1, 2016 at 9:24 am

I wouldn’t be surprised if some form of government “plunge protection team” went into the market to help stabilize the drop short term, and resulting in more of the move up with short covering

d

Oct 2, 2016 at 3:40 am

“I wouldn’t be surprised if some form of government “plunge protection team” went into the market to help stabilize the drop short term, and resulting in more of the move up with short covering”

Could also be major American/Asian banks that dont want DB stock to drop to a call level at this point in time.

The longer they hold up DB, the longer they hold up the Italian and club-med banks. Or increase their time frame to liquidate the italian and club-med holdings

If DB is allowed to fail. A lot of Non Euro banks will face major losses as the Italian and Club Med bank’s follow.

DB is like the Italian and club med banks. Putrid dead cats, being held aloft, by Politicians and Central Bankers, as they do not want to deal with the political and Economic, fallout, that goes with burying them.

The difference with DB is that mutti cant ( Unless she retires and hand’s power to the opposition) and wouldn’t if she could, use taxpayer funds to bail it.

Whereas The ECB and the club-med states politicians, are perfectly happy top socialise the losses, as long as they get a piece in the process.

Over 50% of the claimed DB assets, are not worth 20% of their book value, that is a 800,000,000,000 + Eur Hole.

The Europeans have been seeking an economic boom for over 15 years, thanks to greece and china, they can expect at least another decade of sideways.

With out a miracle or some intervention I don’t see DB lasting that long in its present incarnation. Just like the greek financial crisis saga. That is still not over. DB will be kept limping, at least until after Mutti makes a decision on the German election

If Draggi cant dragoon Mutti into buying into DB, the ECB probably will with its Qe simply to extend the Italian and Club med problems, which is, and always has been , Draggis Agenda.

For those that didn’t know when it was going down, but knew it was going down, Wall Street had invented CDSs so they could profit handsomely from 2008.

blamjamjones

Oct 1, 2016 at 7:26 pm

I honestly dont know, I made a shit load of money of IRE, ye olde irish bank in 2008, went from 200.00 to .5 a share I picked 80,000 shares and sold them at 20.00 a share 2 weeks later then it went down again. The point there is money to be made here, alot of it. Too many big countries want DB, the EC wants to control Germany by making them take out huge loans from the ECB in the form of bonds. I will pick up at least 10000 shares when it goes beneath a 1.00. The only question is whether to invest it in commerzbank…it will follow the same trajectory.

Tom Kauser

Oct 2, 2016 at 12:12 pm

One of the biggest meme out there is ” notational value is a wash on a balanced derivatives book”.
My question concerns the big drop in notational value of DB’s book. Is the 28 trillion drop in DB’s book of derivatives caused by selling or matching and settling the contracts?
If its matching and they still carry 48 trillion notational, we my need to adjust our thinking about THE WASH?

Marty

Oct 4, 2016 at 12:12 am

Wolf, you might want to write a post cautioning people about DB etns and etfs.

Yet another reason why we must end Fractional-Reserve Banking, that great con that’s been in place ever since modern banking got started in the late middle ages.
Only then can we have a stable banking system, and a stable economy, ending boom-and-bust once and for all.
Ending FRB is also necessary to save capitalism. When the banks fail and the economy crashes, capitalism will be blamed again, even though the fault is not at all with capitalism, but with the banks, two separate things. But I fear capitalism will be blamed, and so we will move towards socialism and/or fascism as the supposed “solution” the the problem of economy, propelled by power-hungry demagogues and the clueless citizenry.

d

Oct 6, 2016 at 10:43 pm

“When the banks fail and the economy crashes, capitalism will be blamed again, even though the fault is not at all with capitalism, but with the banks, two separate things. ”

This has been going on for a very long time.

An even greater cause of the problem, always ignored, is State Money printing, and State Debt.

Most of chinas civil wars (china is the global poster child, of big civil wars) have at the root of them. Excessive State money printing and State Debt.

The first one with that root occurred, not long after china invented paper money. Then they invented state “Bond’s” to increase their Money printing ability’s, whilst containing the inflation that goes with it, as they had not.

Physically increased the cash supply.To the people. And the bond’s were only traded, amongst the moneylenders and merchants..

And as you say, the capitalist is always blamed. As the Revolutionary/Revolting Political class. Seeking to replace the existing Political class. Still wants to print money, and run untenable State Debt.

People and Company’s, can go bankrupt, and be liquidated.

There is no Mechanism currently, apart from WAR. To liquidate a Bankrupt Country. Which was the result of the first recorded Western Sovereign default, by of course. ATHENS.

Successful Capitalists, do not need Paper Money, or even Sovereign issued money. It just make Business transaction’s easier.

Sovereign’s do, so they force people to use it, by demanding that they pay TAX in it. You can not print a wholesome lunch, buy you can buy one, with a worthless piece of State printed, paper money.

Capitalist are not the problem, neither are Moneylenders/Bankers.

They simply follow the laws and fractional reserve rules, laid down by the Sovereign’s and Politician’s.

I agree with you partly, except that moneylenders/bankers are indeed the problem, if they are a fractional-reserve institution.

And since you bring up creating money, it is true central banks do this, operating under the sovereign authority. But, crucially, ordinary banks themselves also do this, by the money multiplier effect. As banks make loans the money supply expands, by several times for each dollar/pound/euro put out by the central bank. The money supply swells, creating booms. Then when there is a crisis in the economy, people deleverage and pay off debts, and then the money multiplier effect works in reverse, shrinking the money supply and exacerbating the situation.
Not to mention that keeping only 10% of demand deposits on hand makes banks insolvent by definition, and creates a situation where the collapse of any bank can crash the entire economy.

If you require banks to operate on 100% reserves, where all demand deposits must be kept by the bank, then depositors will always be protected. Banks could still make loans, but only by selling CDs, where money from a customer’s demand-deposit account is transferred to the account of the bank itself, which the bank can then attempt to loan-out at a profit. If the loans go bad, the bank can still collapse, but crucially the regular depositors will be unaffected, and there will be no catastrophic armageddon in the broader economy. Those who purchased CDs will lose their investment, but it is an investment. People chose to invest this money by purchasing a CD and handing over their money to the bank itself, in the hope of earning an interest return. Like any investment, it can go bad, and the investors can lose, but only those people who chose to be investors.
Contrast this to the current banking system, where people need a bank account to function in the economy, and while they have no desire to invest money in the bank or put it at risk, they are nevertheless forced to be at risk as the bank proceeds to hand-out 90% of their funds to others.

Will the availability of debt go down in a 100% reserve world? As the supply of loanable funds would be made up of only those funds which depositors have consciously chosen to put at risk, the answer is probably yes. But, the good probable consequence of this is that equity, and not debt, would become the primary method of finance. Whereas debt favors the elite and the moneyed classes, equity favors the middle and lower classes, or at least lets them participate in reaping the benefits of economic growth by consolidating their small amounts of capital, and to steal a phrase from Marx, allows them to truly “own the means of production”, via ownership of stock.

Debt is akin to the peasants going to the local Lord, a single source that has a lot of money (capital), and asking for a loan to fund an agricultural project. Whereas equity is all the peasants getting together and pooling their own money (capital) to fund the project themselves by virtue of selling shares. In the former situation, if they project succeeds, the Lord reaps much of the benefit by his interest. In the latter the peasants reap the rewards by means of their dividends.
And if the project should fail, in the former the debt is still owed to the Lord, and the peasants stay in gaol until it is discharged. But in the latter, there is only no dividend, or perhaps a total loss of principal, but still no indebtedness is created on the peasants.

In any case, ending fractional-reserve banking is perhaps the single best thing we can do for the economy and the future prosperity of the human race, but it is unfortunately not on anyone’s radar, even among the laissez-faire minded.

d

Oct 7, 2016 at 2:14 am

Banks shouldn’t be able to create money.

They do as they are allowed to by the Sovereign and the Politicians.

Same with reserve ratios, again. They do as they are allowed, to by the Sovereign and the Politicians.

Banks are only doing what the sovereign and the politicians allow them to if they were not allowed to do these thing’s they wouldn’t.

You allow the dog to own and rule the front yard, it will bite callers who enter, and try to knock on the door..

Who is a fault, the dog? or the controller/owner of the dog?

Bank’s are the dog, the Sovereign and politician’s are the controllers.